Articles in Category: Ferrous Metals

Welcome back to the MetalMiner week-in-review. This week, the aluminum world got together in Washington to discuss the threat of overcapacity and the particular problem of Chinese overproduction.

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The U.S. International Trade Commission is involved now. Read our investigation of Chinese overproduction and how it affects aluminum companies around the world while the ITC deliberates.

Source: Thomson Reuters Datastream/China Customs 8/9/2016

We’ve seen Chinese steel exports consistently climb. Source: Thomson Reuters Datastream/China Customs 8/9/2016.

Oil Overproduction

Speaking of overproduction, the Organization of Petroleum Exporting Countries has finally agreed to its first production cuts since 2008. Read more

Much is being made of a mega merger between the publicly traded arm of Shanghai Baosteel Group Corp., the second-biggest Chinese steel mill by output, and the listed unit of Wuhan Iron & Steel Group Corp., its No. 6 steelmaker.

Profitable Baosteel will issue new shares to swap with the loss-making smaller firm. The Chinese press is full of the deal, saying it will rival ArcelorMittal in size and hailing it as an example of Beijing’s drive to consolidate the steel industry and tackle overcapacity.

Why the Urge to Merge?

ArcelorMittal, produced 97 million metric tons of steel last year and has a market value of $17.2 billion. Baoshan and Wuhan were worth $16.3 billion combined as of the June 24 close and produced about 60 mmt last year. Baoshan is a profitable enterprise and generally acknowledged to be well run. Wuhan, on the other hand, is loss making, carries too much debt and, probably in the newly combined group, ripe for plant closures and rationalization.

With 1.2 billion mt of crude steelmaking capacity but 803 mmt of steel production, China clearly has a massive overhang of unproductive capacity, causing some firms to be heavy loss makers. Estimates put combined losses for the industry at $10 billion last year.

But, for Beijing, it is as much a desire to clear up these loss-making companies before the market pulls them down into bankruptcy than it is to cut excess steel capacity. There is little doubt it has taken Beijing’s arm-twisting on profitable firms like Baoshan to take over loss makers like Wuhan that they would probably otherwise steer well clear of.

Beijing wants to avoid a domino collapse of lesser steel firms, like Dongbei Special Steel Group, owned by the Liaoning state government that finally filed for bankruptcy this month after eight, yes eight, defaults.

“If they can merge with others, they merge,”  Li Hongmei, an analyst at S&P Global Platts is quoted in the Financial Times as saying. “If not, they will ask the banks if they can change debt for equity. If that fails, then they will choose the last resort — that will be bankruptcy.”

But bankruptcy is bad for publicity, bad for workers, bad for the banks left holding the debt. Better, in a state-directed world, to have a profitable firm swallow them up and quietly rationalize the loss-making operations.

What’s China’s Real Plan for Loss-Making Steel?

The Economist reports on the wider trend, saying China aims to establish two major steel groups, one in the north and one in the south. The northern union of Hebei Iron & Steel Group with Shougang Group would be the nation’s biggest producer, with output of 76 mmt last year for a share of national production at 10%, topping Baosteel-Wuhan’s 8% share in the south, according to 2015 figures.

Meanwhile, there are rumors Ansteel Group Corp., the country’s fourth-biggest producer, could merge with regional peer Benxi Steel Group Corp. but, apparently, the firms are not confirming discussions are ongoing.

What About Those Steel Closures?

The aim is to close 150 mmt of capacity by 2025 but that will hardly put a dent in the 400 mmt of excess capacity in the country, more importantly for Beijing it may take the worst of the basket cases out of the public eye swallowed up by larger, state-directed groups.

The FT, though, offers a cautionary note: The drive to preserve and promote high-end, coastal steel production capacity while cutting off low-end, inland capacity is present throughout the restructuring plans, including the headline Bao-Wu merger.

“Coastal capacity is growing, and that’s the main trend of the next two years,” the FT reports. “Baosteel has a plant in Guangdong. Wisco has one in Guangxi, and they are ramping up to just under 10 mmt of capacity a year each by the end of 2017. What international steel producers really should be asking is what’s happening with the extra 50 mmt of capacity being commissioned on the Chinese coast in the next two years.”

That new capacity is better placed to service export markets than the plants being closed inland, how much of this drive is really to address overcapacity and how much is it to improve profitability and avoid the trauma of bankruptcies.

Let’s set aside Donald Trump’s one-track talk on China as a currency manipulator for just a sec, and focus on a slightly less understood, and arguably bigger, issue — the role of Chinese state subsidies and state-owned enterprises.

Using the steel industry as an example:

Top 10 Chinese Steel Companies in 2014

top 10 list china steel companies

With the exception of Shagang Group, China’s biggest steel companies are owned — therefore subsidized and otherwise supported — by Beijing. Courtesy of the American Iron and Steel Institute (AISI).

Because nine of the top 10 steel companies in China are SOEs, which get special support (read about it in our new project,China vs. the World,” here) — it ultimately spurs trends like these:


Almost immediately after China joined the WTO in 2001, the country’s steel industry began its exponential rise. Courtesy of AISI.


The Great Recession nipped Chinese exports a bit, but state-owned enterprises continued to be incentivized to produce by the Chinese government while domestic growth stagnated within the last few years, leading to a flood of Chinese steel being pushed outside the country’s borders. Courtesy of AISI.

A Special MetalMiner Project: Learn why China getting market economy status may just be the biggest trade issue of our time – and how it impacts the U.S. steel industry – in “China vs. the World.

china shipping port title

The Philippines shut down 20 more mines recently, further curtailing nickel exports to China. There’s a chance a major Brazilian iron ore miner will divest some of its assets.

More Filipino Nickel Mines Shut Down

The Philippines has suspended 20 more mines for environmental violations, most of them nickel, a government official said on Tuesday, bringing to 30 the number of mines shuttered.

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The suspended mines account for 55.5% of nickel ore output in the Philippines based on last year’s production, Environment and Natural Resources Undersecretary Leo Jasareno told a news briefing.

Brazilian Iron Ore Miner Looks to Sell

Cia Siderúrgica Nacional SA is considering selling part of its stake in Congonhas Minérios SA, Brazil’s No. 2 iron ore producer, to China Brazil Xinnenghuan International Investment Co., two people familiar with the deal told Reuters on Monday.

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According to the people, the Chinese mill known as CBSteel is interested in buying about 25 percent of Congonhas directly from CSN. They said CSN, as Brazil’s No. 2 listed flat steelmaker is known, would remain in control of the unit, adding that talks are advancing slowly and may not necessarily result in a deal.

The Department of Commerce placed anti-dumping duty and countervailing duties on imports of welded stainless pressure pipe from India today. This was a final determination that affirmed Commerce’s previous preliminary determination in March.

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In the countervailing duties investigation, Commerce found that mandatory respondent Steamline Industries Limited received countervailable subsidies at a rate of 3.13% and that mandatory respondent Sunrise Stainless Private Limited, Sun Mark Stainless Pvt. Ltd., and Shah Foils Ltd. (collectively, “Sunrise Group”) received countervailable subsidies at a rate of 6.22%. Commerce assigned a final subsidy rate of 4.65% for all other producers/exporters in India.

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As a result of the affirmative final determinations, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits equal to the applicable weighted-average dumping and subsidy margins.

Shares of U.S. steelmakers made an spectacular run this year, making the steel industry one of the hottest investing opportunities. Stock investors poured money into steel stocks as domestic prices rose.

US Steel (in Blue) and AK Steel (in red) stock prices. Source: MetalMiner analysis of data

U.S. Steel (in Blue) and AK Steel (in red) stock prices. Source: MetalMiner analysis of data.

However, since August, we’ve seen some downward pressure on flat-rolled steel prices with hot-rolled-coil falling near $70 ton from it’s peak in June.

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That caused shares of companies like U.S. Steel and AK Steel to fall more than 40% in just a matter of weeks. Notice how the price trends of shares of both companies are almost identical.

HRC prices correcting since August. Source: MetalMiner analysis of

HRC prices correcting since August. Source: MetalMiner analysis of data.

While steel prices continue to weaken, so will the stock prices of U.S. steelmakers. Investors looking to buy shares of steel companies might want to wait until steel prices make a comeback, if they do, that is.

China’s steel industry will see demand drop even further in 2017 and the Federal Reserve left rates unchanged yesterday.

CISA: Chinese Steel Demand Will Fall More

China’s steel demand is likely to drop for a third year in a row, an industry official said on Thursday, as mills in the world’s top producer focus on reducing capacity.

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China’s crude steel consumption slipped 1.9% from January to July and there may be a slight drop for the year, said Wang Liqun, vice chairman of the China Iron and Steel Association (CISA).

Fed Leaves Rates Unchanged Again

U.S. stocks marched higher on Thursday, with the Nasdaq hitting a record intraday high, as investors cheered the Federal Reserve‘s decision to not raise interest rates yesterday.

While the Fed said the risks to economic outlook were roughly “balanced”, it left rates unchanged for want of “further evidence of continued progress”. Inflation remains below the central bank’s target of 2 percent and members saw room for improvement in the labor market.

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Even if the Fed raises rates at its last meeting of the year in December, many are worried that Central Banks toolkit for hitting inflation targets is ineffective.

Siemens and Local Motors announced a new partnership at the recent International Manufacturing Technology Show in Chicago, which is intended to help advance the future of manufacturing by optimizing the development and large-scale 3D printing of automobiles.

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The partnership combines the power of Siemens’ product lifecycle management (PLM) software technology with Local Motors’ leadership in co-created and 3D-printed vehicles — a process called direct digital manufacturing (DDM), wherein parts are produced directly from CAD files.


All 115,612 International Manufacturing Technology Show attendees could ride Olli, Local Motors’ first 3D-printed, autonomous vehicle to get around the massive show floor. Source: IMTS.

Local Motors plans to enhance productivity in its LM Labs program by leveraging Siemens’ expertise in creating “digital twins,” while Siemens expects to further enhance its digital enterprise software suite to support the latest advances in additive manufacturing/3D printing.

For the first time, Local Motors provided an autonomous vehicle, “Olli” that ferried IMTS goers throughout the halls of McCormick Place. The vehicle used Watson’s capabilities to enable riders to ask complex questions in “natural language” voice such as where to visit in Chicago while in town. Olli can be hailed by an app and is in real-life testing Local Motors testing locations right now including National Harbor, Md., Las Vegas and, later this year, Miami. The autonomous vehicle can take route instructions and explain what’s happening during the trip.

Local Motors brought other 3D-printed vehicles — including Strati, the first 3D-printed show car created at IMTS 2014 — tot the show, too.

On the Siemens side of the partnership, the PLM software provider insists that additive manufacturing is not in direct competition with existing manufacturing processes and will not completely replace them.

“Instead, 3D printing will provide an ideal complement to traditional procedures like injection molding and milling,” said Ulli Klenk, chairman of the board of the Additive Manufacturing Association within VDMA — a German manufacturing association trade and certification association — and also manager of Siemens’ digital factory division.

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Klenk said the certifications and standards VDMA is working on will bring legitimacy to the technology and, within 10 years, additive manufacturing could effectively be commoditized with 3D printing powders and their prices treated as any other raw materials.

OPEC members are now talking about a deal that lasts one year, whether that means curtailing production for that period is still unknown. Australia is attempting to collect $766 million in taxes.

OPEC Deal Could Last a Year

A possible deal to support oil prices by the world’s leading producer-countries may last for one year, the secretary-general of the Organization of Petroleum Exporting Countries said on Tuesday, longer than other officials have indicated.

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OPEC and non-member producers including Russia are discussing a deal to stabilize the market by possibly freezing output, although key details such as the timing and baseline for any deal have yet to emerge.

BHP Vows to Fight Australian Tax Bill

BHP Billiton said it disagreed with Australian tax collectors’ assessment that the miner needs to pay $766 million in back taxes and charges for its Singapore commodities marketing hub, and that it could resort to court action to fight the claim.

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BHP is under investigation by the Australian Tax Office (ATO) for allegedly shifting billions of dollars in iron ore profits through marketing hubs in Singapore, where it operates under an effective tax rate of zero as part of a concessional tax deal.

The industrial metals complex saw prices slip nearly across the board in August as volatility
returned to stock markets and investors lost confidence in central banks’ ability to increase


Even the vaunted Global Precious MMI, which has enjoyed large gains this year due to safe
haven status, dropped this month. It experienced a 4.5% loss. Our Construction MMI and the Grain-Oriented Electrical Steel MMI indexes saw increases this month, but every other sub-index either saw a 2-5% loss or held flat.

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This was somewhat expected as metals such as steel and aluminum remain in a global oversupply situation and metal prices don’t move in a straight line. They zig-zag. Our metal price benchmarking service has thousands of transaction prices to reference as evidence of that.This could be merely a one-month correction or it might signal that the weakness in metals markets is finally denting the bull run of strong price performers such as gold and platinum. Stay tuned next month for more.